Pakistan is a high risk country because of its unstable security situation. However, due to the country’s vast population, there is significant potential for a sizeable market for consumer-orientated businesses as the purchasing power of individuals improves. Pakistan's close geopolitical ties with China should also ensure that it benefits from China's rise, through growing trade and investment.

We keep our clients informed of the latest market moves and political developments in Pakistan, as part of our 'top-down' and 'bottom-up' perspective. Clients also benefit from in-depth analysis on 16 of Pakistan’s most important industries. We provide interactive data and forecasting alongside detailed and risk-assessed analysis from our expert research teams. We aim to keep you one step ahead, so you can operate with confidence in Pakistan.

Country Risk

Pakistan Country Risk

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Core Views:

  • Increased political stability is likely to result from the December 16 Peshawar school attacks in the near term, as opposition politicians come together to look for ways to fight the growing terrorist threat. Over the longer term, the government has an opportunity to tackle terrorism from a grassroots level as it looks to implement a 20-part National Action Plan to combat the spread of extremism.

  • The Pakistani government's reform efforts are slowly bearing fruit, with efforts to reduce energy subsidies, broaden the tax base, and offload stakes in public sector enterprises all contributing to a substantially lower fiscal deficit in Fiscal Year 2013/14. We expect further progress in FY2014/15, which should see the fiscal deficit fall further to 5.1% of GDP.

  • Lower oil prices and the ongoing reduction in government borrowing should...

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Pakistan Operational Risk Coverage (9)

Pakistan Operational Risk

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Pakistan is a very high risk country in both regional and global terms, particularly because of the country's extremely unstable security situation. Its overall Operational Risk score is depressed by a number of factors, namely its large uneducated labour force, poor logistics network owing to an overdependence on road freight, endemic corruption, and the ongoing threats to national security posed by the presence of a large number of terrorist networks and long-term tensions with neighbouring India over Kashmir. For these reasons, Pakistan receives a low score of 34.6 out of 100 in our overall Operational Risk index, putting it in 27th position in Asia. That said, the country's far-reaching road network and developed banking system provide good access to international financial markets, significantly reducing risks to investors and incoming businesses.

The main risk to investors in Pakistan is the country's extremely...

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Pakistan Crime & Security

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Crime and security risks to foreign investors are very high in Pakistan, owing to the high incidence of violent crime in the country, the prevalence of terrorist networks, and the ongoing threat of war with India. There is an ongoing risk of terrorist activity in the country, and Pakistan plays host to a number of international terrorist networks, most notably al-Qaeda, which pose a direct threat to foreign workers. The threat is exacerbated by the underfunded and corrupt nature of Pakistan's counter-terrorist and police forces, and, crucially, the perceived role of the Pakistani authorities in supporting various terrorist networks. Finally, there remains in Pakistan an existential threat of war with India. While we do not expect this to jeopardise foreigners in the short term, it remains a concern for businesses operating in the country, particularly around the disputed border territory of Kashmir. For these reasons, Pakistan scores 8.9 out of 100 for...

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Pakistan Labour Market

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Pakistan is one of the poorest regional performers with regards to Labour Market Risk, with very low basic skills levels and high costs of employment. Very low secondary and tertiary enrolment rates are further significant impediments to the development of a workforce capable of skilled, technical labour, which may result in the need to import skilled labour, incurring high employment costs. Pakistan's overall score for Labour Market Risk is 42.9 out of 100 of the 30 countries in Asia.

Extremely low enrolment and attainment levels at both secondary and tertiary education levels are the main impediment to a highly skilled workforce in Pakistan. The country's low score of 37.9 out of 100 for Education reflects the fact that only 36.7% of its labour force have secondary education and above. Investors seeking skilled, secondary-educated employees can therefore expect wage costs to be higher. Moreover, we anticipate these problems...

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Pakistan Logistics

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Pakistan has a very underdeveloped logistics network, suffering from a lack of government investment in its transport network and utilities sectors. Poor access to key utilities such as water, internet, fuel and electricity remain an ongoing operational risk to businesses. Furthermore transport risks continue to rise as the deterioration of the rail network increases pressure on the country's roads, causing congestion and disruption to supply chains. For these reasons, Pakistan receives a low score of 46.1 out of 100 for overall Logistics Risks in the BMI Logistics Risk Index, putting it in 17th position out of 30 countries in Asia.

Pakistan's negative growth prospects represent a considerable deterrent to investors. Nevertheless, the country's considerable market size and vast regions of untapped resources mean that opportunities for investment will remain. Poor access to key utilities such as water and internet, as...

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Pakistan Trade & Investment

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Trade and investment risks are very high in Pakistan owing to the country's high fiscal and trade barriers and the extent of red tape plaguing its bureaucracy. Compounded by the volatile domestic security situation, foreign investment outflow in recent years has slowed, a trend we expect to continue in the foreseeable future. That said, the country's developed banking system provides good access to international financial markets. For these reasons, the country has an overall score of 29.5 out of 100 for Trade and Investment, putting it in 24th position out of 30 countries in Asia.

Following a sharp rise in foreign direct investment (FDI) in Pakistan from the mid-1990s to the mid-2000s, since 2008 it has slowed significantly, and currently accounts for just 11.8% of Pakistan's total GDP. For the most part, inconsistent economic policies, high fiscal and trade barriers, high corporate tax rates and poor infrastructure are responsible for this...

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Pakistan Industry Coverage (16)

Agribusiness

Pakistan Agribusiness

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BMI View: Increases in export duties on both sugar and wheat - both announced towards the end of 2014 - are indicators of the government's willingness to support the interests of producers over consumers. Sugar prices in particular remain elevated in Pakistan compared to prices on the world market. Prices for Pakistan's core agricultural commodities have generally been weak in 2014 and Q115, but we see rice and cotton in particular gathering support in 2015 and over the later years of our forecast period to 2019. We therefore see a better outlook for Pakistani exports of cotton and rice, but we note that higher cotton prices also pose a risk to our consumption forecasts as Pakistani textile mills remain dependant on imports for the higher quality yarns.

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Agribusiness Market Value
BMI Market Value By Commodity (2011-2019)

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Autos

Pakistan Autos

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In line with our view that Pakistan's FY2014/15 (July-June) budget will be positive for auto demand, vehicle sales (sum total of passenger car, light commercial vehicles, heavy trucks and bus sales) surged 24.4% year-on-year (y-o-y) in December 2014 (latest available data) to 11,446 units. This brought sales for H12014/15 to 69,310 units, an increase of 10.8% y-o-y. We are maintaining our full fiscal year sales growth forecast of 4.8%, as we see base effects tempering growth slightly in the coming months.

Moreover, the State Bank of Pakistan's January cut of 100 basis points in its key discount rate to 8.5% will be another positive for auto sales. As consumer financing rates decline, buyers will be more incentivised to take up vehicle loans, which will benefit both passenger car and commercial vehicle (CV) sales.

For the CV segment, we foresee that a cut in general sales tax on tractors to 10% from 17%...

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Commercial Banking

Pakistan Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Pakistan Consumer Electronics

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BMI View: Pakistan continues to present major challenges to vendors, and underperform its potential due to a number of economic, social and political risks. However, the large population and rising incomes mean there are still opportunities for vendors. Although political and security concerns remain, the economic environment is supportive of expansion, with rising incomes, consumption growth, and encouragingly, private sector credit growth has also recovered from its recent trough. The opportunity provided by the large population and economic environment has been sufficient to attract investment from multinational consumer electronics market leaders...

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Defence & Security

Pakistan Defence & Security

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BMI View: We expect an escalation in domestic security threats though 2015 in response to the NATO withdrawal from Afghanistan, the ongoing military offensive in the Federally Administered Tribal Area (FATA), and rising tensions with Indian forces along the Jammu Kashmir border. The Pakistan Government has increased military spending, and is investing in indigenous defence companies. They in turn are looking to increase capacity through international partnership, creating opportunities for foreign players. 

The security situation in Pakistan has steadily deteriorated through 2014. Last year witnessed regular terrorist attacks against military and civilian assets, including Karachi International Airport. This illustrates that domestic and international terror cells are well resourced and well trained, making them a credible threat to domestic and international organisations. Moreover, the NATO...

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Food & Drink

Pakistan Food & Drink

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BMI View: We expect that Pakistan will become an increasingly important investment destination from a demographic point of view over the long term, provided political issues are addressed successfully. Pakistan's population is increasing rapidly, with the World Bank projecting it to exceed 200mn by 2022. Urbanisation rates are also increasing, albeit slowly. We see real GDP growth coming in at 4.0% in fiscal year 2014/15, from 4.1% in FY2013/14. Per capita food consumption is forecast to experience strong growth, however this will be from a low base, and consumption is likely to remain...

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Freight Transport

Pakistan Freight Transport

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The freight mix in Pakistan is set to perform moderately in both the short and medium term, with growth constricted somewhat by the parlous state of many integral economies at present. Also, domestic strife, such as the road blockade in Punjab in August 2014, has had a detrimental effect on freight output and such scenarios could flare up again into 2015.

Export cargo worth USD600mn came to a standstill in August 2014 due to a road blockade in the province of Punjab, according to exporters and shipping line sources and reported by Business Recorder. The tussle between the Pakistani government and opposition political parties - Pakistan Tehreek-e-Insaf and Pakistan Awami Tehrik - has resulted in a virtual collapse to businesses, trade, social and exports activities in the province. This could have a significant detrimental impact on the Pakistan freight industry should further blockades take place going forward.

The...

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Infrastructure

Pakistan Infrastructure

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BMI View:  Our outlook for Pakistan's construction sector remains largely subdued for 2015 and beyond. Domestic political uncertainty is undermining confidence in the market, and ongoing security risks continue to deter foreign investors. High levels of government debt and rising inflation are restricting public spending, and while many infrastructure projects are planned or underway, these continue to suffer from escalating costs and delays.

Pakistan's infrastructure network, starting as it does from a low base, does offer enormous long term potential. The country benefits from a strong regional location, good relations with powerhouse China and a large potential labour pool. If it is able to secure political stability and address corruption at high levels in order to create a more attractive investment environment we may see further growth in Pakistan...

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Insurance

Pakistan Insurance

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BMI View: The Pakistani insurance sector remains one of the more challenging markets we monitor. Widespread poverty has traditionally limited penetration of insurance coverage to just the highest income earners, reducing the opportunities for multi-nationals to enter the market. Meanwhile the proliferation of smaller and medium-sized players, particularly in the non-life segment, has further deterred foreign companies from entering a congested, low-margin environment. However, recent changes to Pakistan's insurance regulatory framework are gradually opening up new areas of the market.

In 2015, new Takaful regulations passed in May 2014 are expected to boost insurance penetration with EFU the first of several conventional insurance firms expected to begin offering Sharia-compliant products to customers. Meanwhile, the growth of the micro-insurance...

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Medical Devices

Pakistan Medical Devices

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BMI Industry View: The Pakistan medical device market is small for a country its size. Domestic production is limited primarily to steel surgical instruments and the majority of the market is supplied by imports. In 2013, BMI estimates that the medical device market was worth USD259.7mn, or USD1.4 per capita. The medical device market is expected to grow at a reasonable rate, with a CAGR of 6.3% forecast for the 2013-2018 period.

Headline Industry Forecasts

...

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Oil & Gas

Pakistan Oil & Gas

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BMI View: We believe Pakistan's oil and gas reserves will continue dwindling over the forecast period due to excessive utilisation and lack of significant discoveries. However, several recent exploration successes and government's efforts to incentivise exploration and production pose an upside to our projections and could mitigate the negative trend, especially towards the second half of our forecast period.

Headline Forecasts (Pakistan 2013-2019)
2013 2014e 2015f ...

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Pharmaceuticals & Healthcare

Pakistan Pharmaceuticals & Healthcare

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BMI View: Pakistan's epidemiological profile will undergo a transition as the burden of non-communicable diseases rises and communicable diseases decline. However, despite the clear need for medical care, poor medical infrastructure, low per capita pharmaceutical spending and high levels of counterfeit medicines prevent the market from realising its full potential.

Headline Expenditure Projections

  • Pharmaceuticals: PKR231.2bn (USD2.29bn) in 2014 to PRK254.6bn (USD2.47bn) 2015; +10.1%in local currency terms and +8.0% in US dollar terms.

  • Healthcare: PKR791.6bn (USD7.8bn) in 2014 to PKR875.8bn (USD8.50bn) in 2015; +10.6% in...

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Power

Pakistan Power

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BMI View : The adoption of net metering in Pakistan will not only drive the expansion of the country's domestic solar industry, but also help to alleviate the domestic power shortfall. Solar is set to play an increasingly important role in the country's power mix over the coming decade as it presents a viable alternative to conventional fuels.

In a bid to improve energy security, the government is keen to incorporate renewable energy (primarily solar and wind) into the power mix and has taken steps to attract investors into the market, for example, by introducing feed-in tariffs

In January, it was announced that the Pakistani government had approved a net metering scheme for solar power, which would allow solar generators to sell excess power they produce back to the national grid. The...

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Real Estate

Pakistan Real Estate

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BMI View: Pakistan's commercial real estate sector is underdeveloped, with long-term security problems and unstable politics having served to deter investment into the sector. Although we see this situation continuing, at least in the short term, in the long term there are significant opportunities as prices are low, meaning potential yields are high, and there is considerable room to expand and modernise Pakistan's stock of commercial real estate.

Improved regulations surrounding the creation of real estate investment trusts (REITs) could pave the way for increased investment via this format, and lead to more Pakistani investment being directed into the home market rather than overseas.

We forecast Pakistan's real GDP growth rate will be around 4.1% a year over our forecast period to 2018. The economy is held back by concerns over the security situation and political...

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Shipping

Pakistan Shipping

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We are expecting moderate-to-strong throughput growth at Pakistan's main ports in the fiscal year ending June 2015, with volumes growing by 3-8%. Growth will be marginally down on the previous year, reflecting a slowdown in foreign trade expansion.

BMI continues to predict 4.0% GDP growth in fiscal year 2014-15 (running to end-June 2015), despite some downside risks. In our view, slow but significant progress is being made on structural economic reforms, with efforts to reduce energy subsidies, broaden the tax base, and offload stakes in public enterprises all contributing to a narrowing fiscal deficit. On the privatisation front the government has sold minority share stakes in United Bank (UBL), Pakistan Petroleum (PPL) and Allied Bank (ABL), generating roughly USD650mn in revenues.

Downside risks include political...

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Telecommunications

Pakistan Telecommunications

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BMI View: Pakistan's telecommunications market is one of the most underdeveloped in the Asia Pacific region. The regulator has successfully auctioned its 3G licences, paving the way for higher value-added services (VAS) to be introduced to the market. This leaves Pakistan with significant room for growth, although the potential might only materialise in the medium- to long-term.

Key Data

  • According to the latest data provided by the PTA, there were 135.762mn mobile subscribers in the country...

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